Opinion  

The truth behind auto-enrolment opt-outs

Aimee Steen

Auto-enrolment has so far been touted as a roaring success. Asda reported just 8 per cent opt-outs and Nest’s early indications showed just 10 per cent exempting themselves from their employer’s scheme.

This is exactly what the government wanted: people’s laziness – sorry, ‘inertia’ – leading them blindly into saving for a pension that they never knew they wanted or needed.

In the shiny new auto-enrolment world, everybody is supposed to smile happily and be glad that they’re now making provision for retirement – despite it being widely acknowledged that the minimum contributions will not be sufficient for any level of comfortable retirement. The burden has been taken away and all auto-enrolled employees should not have to worry about a thing.

Article continues after advert

Voices on the ground suggest a very different story. Employees of some of the companies boasting magnificently low opt-out rates haven’t un-enrolled themselves because they don’t know how, some say. Despite it being part of the whole deal that employers make it clear how to get out, it has been suggested that these employees do not understand the communications provided regarding opting out and therefore cannot do so. Basic literacy issues potentially pose huge problems.

Others are allegedly viewing the pension contribution going out of their monthly pay as some form of pay cut or additional tax, not really understanding what it is – or, if they do, not knowing they can choose not to pay it – but knowing they will have to find the extra cash to make ends meet each month.

All of which presents a big problem for low-earners managing an extremely tight budget. How can they cover the shortfall? Suggestions are floating around that payday loans are being used to cover the gap, an extremely worrying idea if it turns out to be the case.

Auto-enrolment is a great idea if it works and employees understand it. But if they don’t, it’s one more burden for low-earners already struggling.